Slouching Toward a Double Dip, For No Good Reason

Imagine your house is burning. You call the fire department but your call isn’t answered because every fire fighter in town is debating whether there will be enough water to fight fires over the next ten years, even though water is plentiful right now. (Yes, there’s a long-term problem.) One faction won’t even allow the fire trucks out of the garage unless everyone agrees to cut water use. An agency that rates fire departments has just issued a downgrade, causing everyone to hoard water.

While all this squabbling continues, your house burns to the ground and the fire has now spread to your neighbors’ homes. But because everyone is preoccupied with the wrong question (the long-term water supply) and the wrong solution (saving water now), there’s no response. In the end, the town comes up with a plan for the water supply over the next decade, but it’s irrelevant because the whole town has been turned to ashes.

Okay, I exaggerate a bit, but you get the point. The American economy is on the verge of another recession. Most Americans haven’t even emerged from the last one. Consumers (70 percent of the economy) won’t or can’t spend because their major asset is worth a third less than it was five years ago, they can’t borrow as before, and they’re justifiably worried about their jobs and wages. And without customers, businesses won’t expand and hire. So we’re trapped in a vicious cycle that’s getting worse.

But the government won’t come to the rescue by spending more and cutting most peoples’ taxes because it’s obsessed by a so-called “debt crisis” based on budget projections over the next ten years. That obsession – which serves the ideological purposes of right-wing Republicans who really want to shrink government — has even spread to the eat-your-spinach media, deficit hawks in the Democratic Party, and a major (and thoroughly irresponsible) credit-rating agency that’s neither standard nor poor.

Meanwhile, some lazy (or misinformed) commentators are linking our faux debt crisis to Europe’s real one. But the two are entirely different. Several European nations don’t have enough money to repay what they owe their lenders, or even pay the interest. That’s threatening the entire euro-zone.

But there’s no question that the United States has enough money to pay what it owes. We’re the richest nation in the world and we print the money the world relies on. The only question on this side of the pond is whether tea-party Republicans will allow America to pay its bills when the debt-ceiling fight resumes at the end of 2012.

Europe is scared of what’s happening in the United States – but it’s not America’s faux “debt crisis” that’s spooked them. It’s the slowdown here (and the likelihood of another recession), made all the worse as our debt obsession prevents the U.S. government from doing what it should. A slowdown and recession here mean fewer exports from Europe to America. When combined with their genuine debt crisis, this could push Europe’s economy over the edge.

The most important aspect of policy making is getting the problem right. We are slouching toward a double dip because we’re getting the problem wrong. Despite what Standard & Poor’s says, notwithstanding what’s occurring in Europe, and regardless of U.S. budget projections years from now — our current crisis is jobs, wages, and growth. We do not now have a debt crisis.

Every time you hear an American politician analogize the nation’s budget to a family budget (as, sadly, even President Obama has done), you should know the politician is not telling the truth. The truth is just the opposite. Our national budget can and should counteract the shrinkage of family budgets by running larger deficits when families cannot.

Americans are more frightened, economically insecure, and angrier than at any time since the Great Depression. If our lawmakers continue to obsess about the wrong thing and fail to do what must be done – and they don’t explain it to the nation – Americans will only become more fearful, insecure, and angry.

We are slouching toward a double dip, with all the human costs that implies. We don’t have to be. That is the tragedy of our time.

Robert Reich is the nation's 22nd Secretary of Labor and a professor at the University of California at Berkeley.

He has served as labor secretary in the Clinton administration, as an assistant to the solicitor general in the Ford administration and as head of the Federal Trade Commission's policy planning staff during the Carter administration.

He has written eleven books, including The Work of Nations, which has been translated into 22 languages; the best-sellers The Future of Success and Locked in the Cabinet, and his most recent book, Supercapitalism. His articles have appeared in the New Yorker, Atlantic Monthly, New York Times, Washington Post, and Wall Street Journal. Mr. Reich is co-founding editor of The American Prospect magazine. His weekly commentaries on public radio’s "Marketplace" are heard by nearly five million people.

In 2003, Mr. Reich was awarded the prestigious Vaclev Havel Foundation Prize, by the former Czech president, for his pioneering work in economic and social thought. In 2005, his play, Public Exposure, broke box office records at its world premiere on Cape Cod.

Mr. Reich has been a member of the faculties of Harvard’s John F. Kennedy School of Government and of Brandeis University. He received his B.A. from Dartmouth College, his M.A. from Oxford University, where he was a Rhodes Scholar, and his J.D. from Yale Law School.

1 Comment on Slouching Toward a Double Dip, For No Good Reason

As much as I disagree with you taking S&P to task, I wish more people would understand your reasoning in this article and where the real issue in the current US economy lies. The tax breaks need to go to the consumers, not the rich and corporations, to spur the economy, and the deficit does need to grow to further impel the economy. I would say however, that this exact issue, the crippling of the government by the Tea Party right wing is likely a very big aspect to why S&P sees deeper trouble ahead, and the risk of enough political infighting to either default by deadlock as almost happened, or spiral the economy into a full stall or second recession from inaction and debt obsession. I believe S&P did the right thing, but for the wrong reasons. Nobody is calling Congress and the government on this issue, but S&P might at least get people looking more closely at it.

Alternately, and perhaps this is more your real point, S&P may just serve to focus even MORE people on the debt, rather that the economy. So really, how do you get third parties to rate the economy so some sound economic theory can be brought in?